Two common points made in defense of the Export-Import bank are its recent profitability and the number of jobs it supports. During the recent reauthorization debate, defenders argued that it would be silly to cut a program that makes a profit for taxpayers and supports American jobs. The Ex-Im bank claims it posted a $1 billion profit in FY2013 and supports 255,000 American jobs.
However, new evidence undermines both these claims. As part of the 2012 Export-Import Bank Reauthorization Act, Congress directed the Government Accountability Office to review the Export-Import Bank’s method for calculating its impact on employment. The Bank feeds the value of the exports by industry into input-output tables published by the Bureau of Labor Statistics (BLS) to calculate the total number of jobs it supports. As the GAO’s report notes, there are several limitations of to this methodology:
- The Export-Import Bank’s method cannot distinguish between jobs its programs create, jobs its programs merely maintain, and jobs that are shifted to exporting sectors. The bank often elides this distinction by speaking of jobs its program “supports” or jobs “associated” with its programs. In fairness, this ambiguity is a general limitation rather than a specific failing on the bank’s fault.
- The input-output tables produced by the BLS are based on 2002 data and have not been updated in over a decade. The Export-Import Bank’s calculations, then, do not reflect structural changes to the economy from the Great Recession and its aftermath.
- The Bank counts full-time, part-time, and seasonal work equally. But in fact, we don’t know how many of the jobs it supports are part-time or temporary. Furthermore, the Bank measures the number of jobs not the number of persons employed, so workers holding multiple jobs show up multiple times in the data.
The GAO report criticizes the Ex-Im bank for failing to specifically identify these limitation of its methodology. While the Ex-Im bank admits the number is an estimate, it owes it to the public to disclose significant sources of uncertainty in its estimate.
The Bank’s claimed profitability for its part relies on accounting practices that differ from those of private lenders. Under current rules, the Ex-Im bank is not required to factor “market risk” into calculating the present value of its loans. “Market risk” refers to the risk of default on a loan from general changes in macroeconomic conditions. As the CBO noted in a report last year, many government lenders are not required to factor in market risk because always buy low-yield U.S. Treasury bonds to make up for a default.
How does this affect the Ex-Im’s profitability? The present value of the bank’s assets is calculated by discounting the value of its future cash flow. Because the Ex-Im bank use the proceeds from Treasury bond sales in the event of a default, which have a very low interest rate, its discount rate is lower than private lenders and the present value of its loans is higher than an equivalent private lender. But as the CBO observes, this extra value is an illusion:
The federal government’s ability to borrow at Treasury rates also does not reduce the cost to taxpayers of the market risk associated with federal credit programs. Treasury rates are relatively low because the securities are backed by the government’s ability to raise taxes. When the government finances a risky loan or loan guarantee by selling a Treasury security, it is effectively shifting risk to members of the public. (p. 7)
The Ex-Im bank’s ability to buy Treasury bonds, in other words, finances the loans by adding to the public debt — that is, passing the costs along to taxpayers in the form of future tax increases or spending cuts. A rough estimate of the Ex-Im bank’s outlook after factoring in market risk puts the cost to taxpayers at at least $200 million.
These new findings cast doubts on the job figures and profitability claims put forth by . At the very least, a fair comparison with private sector alternatives requires using the same accounting method. Given that the two strongest points in the case for the Ex-Im bank now lie in question, the case for ending it permanently now looks stronger than ever.